Clause 322: Arrangements

451. Similarly, clause 322 simplifies and replaces section 50 of the Drug Trafficking Act 1994 and section 93A of the Criminal Justice Act 1988, section 38 of the Criminal Law (Consolidation) (Scotland) Act 1995 and Article 46 of the Proceeds of Crime (Northern Ireland) Order 1996. The prosecutor would need to establish under this offence that a person (the alleged offender) entered into or became concerned in an arrangement which he knew or suspected would facilitate another person to acquire, retain, use or control criminal property and that the alleged offender also knew or suspected that the property constituted or represented benefit from criminal conduct. An exemption for the police or other enforcement authority as in clause 321(2)(c) is similarly included in subsection (2)(c).

Clause 323: Acquisition, use and possession

452. Clause 323 unifies and replaces section 51 of the Drug Trafficking Act, section 93B of the Criminal Justice Act 1988, section 37 of the Criminal Law (Consolidation) (Scotland) Act 1995 and Article 45 of the Proceeds of Crime (Northern Ireland) Order 1996. As in clauses 321 and 322, by reason of clause 329, this offence is only committed where a person knows or suspects that the property which is acquired etc constitutes or represents his own or another's benefit from criminal conduct. The effect of the defence in subsection (2)(c) is that persons, such as tradesmen, who are paid for ordinary consumable goods and services in money that comes from crime are not under any obligation to question the source of the money. Subsection (3)(c) makes it clear that the provision of goods or services for adequate consideration that help a person to carry out criminal conduct would not be a defence. As in clauses 321 and 322, the police and other enforcement authorities are exempt from the offence where they take possession of criminal property in the course of their official duties.

453. Under this clause, possession means having physical custody of criminal property, and having such possession is a prohibited act for the purposes of making a disclosure under clause 323(2)(d) and clause 328(6).

Clause 324: Failure to disclose: regulated sector

454. Clause 324 replaces section 52 of the Drug Trafficking Act 1994 and creates an obligation to report suspicions of money laundering to the authorities. The equivalent provision in Scotland is section 39 of the Criminal Law (Consolidation)(Scotland) Act 1995 and in Northern Ireland is Article 44 of the Proceeds of Crime (Northern Ireland) Order 1996. Clause 324 widens the scope of the offences that it replaces beyond drug money laundering to the laundering of the proceeds of any criminal conduct. By virtue of subsection (2)(b), the offence would also be committed where a person has reasonable grounds for knowing or suspecting that another person is engaged in money laundering.

455. The duty to report under clause 324 is, however, restricted to those persons who receive information in the course of a business in the regulated sector, as defined in Schedule 6 to the Act. This definition follows closely equivalent provision in the Money Laundering Regulations 1993, which determines the applicability of those Regulations. The definition provides that a business is in the regulated sector to the extent that it carries out the activities listed in Part 1 of Schedule 6. The clause reflects the fact that persons who are carrying out activities in the regulated sector should be expected to exercise a higher level of diligence in handling transactions than those employed in other businesses. Where a business carries out some activities which are listed in Schedule 6 and some which are not, then only employees carrying out the listed activities will be caught. Guidance Notes on Money Laundering have been produced and issued since 1990 to regulated institutions by the industry's Joint Money Laundering Steering Group, which operates under the auspices of the British Bankers' Association.

456. Clause 324(6) recognises the potential value of such guidance and provides that the court must take any guidance issued by a supervisory authority or any other appropriate authority into account when determining whether an offence has been committed. A list of supervisory authorities is to be found in Part 2 of Schedule 6. The court would only be obliged to take into account guidance, the content and manner of publication of which has been approved by the Treasury (in its capacity as the Government department which has overall lead responsibility for money laundering policy in the regulated sector).

457. The scope of clause 324 extends to inchoate offences such as conspiracy by reason of the definition of money laundering in clause 329(10)(b) and (c).

Clause 325: Tipping off

458. Clause 325 creates offences of making a disclosure likely to prejudice a money laundering investigation being undertaken or which may be undertaken by law enforcement authorities. Together with clause 331 (offence of prejudicing an investigation), these new offences replace section 53 of the Drug Trafficking Offences Act 1994 and section 93D of the Criminal Justice Act 1988. The equivalent provision in Scotland is section 40 of the Criminal Law (Consolidation) (Scotland) Act 1995; in Northern Ireland it is Article 48 of the Proceeds of Crime (Northern Ireland) Order 1996.

459. As for clauses 321(2)(c), 322(2)(c) and 323(2)(c), there is protection from the offence for law enforcement officers who may need to make a prohibited disclosure in the course of their official duties. As for clause 324, clause 325 also extends to inchoate offences, for the same reason.

Disclosures

Clause 327: Protected disclosures

460. Clause 327 exempts a person carrying out activities in the regulated sector from any legal or other obligations that would otherwise prevent him from making the disclosures to the authorities that are required by clause 324. The protection is very wide, consistent with the United Kingdom's obligations under Article 9 of the 1991 European Community Directive on prevention of the use of the financial system for the purpose of money laundering.

Clause 328: Authorised disclosures

461. Clause 328 sets out the circumstances in which a disclosure will be 'authorised' for the purposes of affording a defence to the principal money laundering offences in clauses 321 to 323. Where a disclosure is 'authorised' for these purposes, then it is not to be taken to breach any rule which would otherwise restrict that disclosure.

Interpretation

Clause 329: Interpretation

462. Subsection (11) extends the definition of a constable (as used in this Part only) to a person authorised by the Director General of the National Criminal Intelligence Service. This is for the purpose of facilitating the handling of suspicious transaction reports by civilian staff employed by NCIS.

Schedule 6: Regulated sector and supervisory authorities

463. Part 1 of this Schedule defines what is or is not a business in the regulated sector for the purpose of clause 324(3). It is broadly based on Article 4 of the Money Laundering Regulations 1993 (SI 1933/1993). A business that engages in activities listed in paragraph 1, in addition to other non-regulated activities, is only in the regulated sector to the extent that it carries on the listed activities. This ensures that clause 324(3) only catches those involved in regulated activities.

464. Part 2 of Schedule 6 lists supervisory authorities for the purpose of clause 324(6)(a), and is consistent with Article 15 of the 1993 Money Laundering Regulations.

Part 8: Investigations

Chapter 1: Investigations

Clause 330: Investigations

465. Clause 330 defines the types of investigations in respect of which the powers set out in Part 8 may be variously exercised. These are:

an investigation into whether a person has benefited from criminal conduct and the extent or whereabouts of his benefit (a confiscation investigation);

an investigation into whether property is recoverable property or associated property, who holds the property and its extent or whereabouts (a civil recovery investigation); and

an investigation into whether a person has committed a money laundering offence (a money laundering investigation).

466. Subsection (3) precludes the use of the powers for the purposes of a civil recovery investigation if civil recovery proceedings have been started under clause 248 or 249, an interim receiving order (interim administration order in Scotland) applies to the property as provided under clause 251 or 259, or cash is seized and detained by virtue of clauses 293 and 294. Apart from in the context of money laundering investigations, none of the powers under Part 8 is available for use in investigations into criminal offences.

Clause 331: Offences of prejudicing investigation

467. This clause makes it an offence to prejudice an investigation or prospective investigation by making a disclosure about it or by tampering with evidence relevant to the investigation.

Chapter 2: England and Wales and Northern Ireland

468. Chapter 2 provides the scheme for the investigation powers in England and Wales and Northern Ireland. The scheme relating to Scotland is provided for in Chapter 3.

Clause 332: Judges

469. Clause 332 specifies the judges to which applications for orders are to be made. Applications in respect of confiscation and money laundering investigations must be made to a Circuit judge in England and Wales (or Crown Court judge in Northern Ireland). Applications in respect of civil recovery investigations must be made to a High Court judge.

Clause 333: Courts

470. This clause specifies the court which is responsible for the different investigations: the Crown Court in respect of confiscation and money laundering investigations and the High Court in respect of civil recovery investigations. Clauses 340, 351 and 358 have supplementary provisions regarding the variation and discharge of investigation orders and the making of applicable rules of court. In respect of England and Wales these only relate to the investigation orders which would come before the Crown Court; no provision is needed for the High Court. In Northern Ireland, however, express provision is required to enable the High Court to discharge or vary orders. So the supplementary provisions need to apply to the High Court for investigations conducted in Northern Ireland.

Production orders

Clause 334: Production orders

471. The power for a judge to make a production order is available for all three types of investigations specified in clause 330. Similar powers exist at present in section 93H of the Criminal Justice Act 1988, section 55 of the Drug Trafficking Act 1994 and Article 50 of the Proceeds of Crime (Northern Ireland) Order 1996. Under subsection (1), an application for a production order may be made by an appropriate officer; clause 365 specifies the appropriate officer in relation to each type of investigation.

Clause 335: Requirements for making of production order

472. The Human Rights Act 1998 requires a judge not to act in a way which is incompatible with Convention rights. So, for example, an appropriate officer will have to satisfy a judge that any infringement of, for example, a person's right to privacy under Article 8(1) of the Convention is proportionate to the benefit to be gained from making an order (which in any event must be substantial (see subsection (4)). It is unnecessary, therefore, to retain the "public interest" test contained in section 93H(4)(c) of the Criminal Justice Act 1988 (as amended), section 55(4)(c) of the Drug Trafficking Act 1994 and Article 50(4) of the Proceeds of Crime (Northern Ireland) Order 1996 as one of the requirements for making a production order.

Clause 336: Order to grant entry

473. This clause clarifies the power contained in section 93H(5) of the Criminal Justice Act 1988 (as amended), section 55(5) of the Drug Trafficking Act 1994 and Article 50(5) of the Proceeds of Crime (Northern Ireland) Order 1996 to grant entry along with a production order authorising access to material (rather than an order to produce material). This power might be used, for example, to enable an appropriate officer to be granted entry to a building in circumstances where a production order had been made in respect of material in a particular office in that building.

Clause 339: Government departments

474. This clause extends the scope of a production order to cover material held by an authorised government department and is similar to existing powers in section 93J(11) of the Criminal Justice Act 1988, section 59(11) of the Drug Trafficking Act 1994 and Article 54(11) of the Proceeds of Crime (Northern Ireland) Order 1996 [SI 1996 No. 1299 (NI 9)]. In addition, in order to reflect the effect of devolution in Northern Ireland under the Northern Ireland Act 1998, provision is made to ensure that Northern Ireland departments are, for the purposes of this clause, treated as government departments.

Clause 340: Supplementary

475. Subsection (7) provides that production orders and orders to grant entry which may be authorised by a Circuit judge (or, in Northern Ireland, a Crown Court judge) have effect as if they were orders of the Crown Court. There is similar provision for discharge and variation of orders in respect of the High Court of Northern Ireland. This is so that, if such orders are not complied with, proceedings for contempt of the Crown Court may be instituted. Orders made by a High Court judge automatically attract contempt of the High Court if they are not complied with (subsection 8).

Search and seizure warrants

Clause 341: Search and seizure warrants

476. Powers to issue warrants derive from the existing powers in section 93I of the Criminal Justice Act 1988, section 56 of the Drug Trafficking Act 1994 and Article 51 of the Proceeds of Crime (Northern Ireland) Order 1996. They differ from warrants under Part II of the Police and Criminal Evidence Act 1984 (PACE) or Part III of Police and Criminal Evidence (Northern Ireland) Order 1989 [SI 1989 No.1341 (NI 12)] in that they permit the seizure of special procedure material (defined at section 14 of PACE). These warrants also differ from those issued under Schedule 1 to PACE (which also permit the seizure of special procedure material) in that a different suspicion test applies (dealing with 'benefit' rather than the commission of an offence) and that applications may be made without notice to the person whose premises are to be searched. Except where different provision is made in the Bill, the general provisions in Part II of PACE about search warrants apply to search warrants issued under this clause. As in clause 334, an application for a warrant may be made by an appropriate officer as set out in clause 365. Subsection (5) provides for a constable to execute the warrant if it is sought in relation to a confiscation or money laundering investigation, and for a named member of staff of ARA if the warrant is sought in relation to a civil recovery investigation. A warrant may be issued either if a production order has been made and not complied with and there are reasonable grounds for believing that the material specified in the warrant is on the premises, or the requirements of clause 342 are met (subsection (6)).

Clause 342: Requirements where production order not available

477. The same change to the "public interest" test is made here as in the case of production orders (see the note on clause 335 above). Subsection (1)(b) refers to two sets of conditions. The first set of conditions (subsections (3) and (4)) might be satisfied, for example, where the person who owns the material is abroad and therefore it is not possible to communicate with that person. In such circumstances, it is clear that a production order in respect of that person would have no effect. The second set of conditions (subsections (5) to (9)) might be satisfied where it is impossible to describe the material (for the purposes of a production order) and access will not be gained without a warrant (e.g. to the residence of the suspect).

Clause 344: Further provisions: confiscation and money laundering

478. This clause makes provision for the application by subordinate legislation (subject to the negative resolution procedure) of certain provisions of the Police and Criminal Evidence Act 1984 (or its Northern Ireland equivalent) concerning search warrants to search warrants under the Bill where they are sought in relation to confiscation or money laundering investigations.

Clause 345: Further provisions: civil recovery

479. This clause sets out provisions regarding when and how a warrant issued by the High Court for the purposes of a civil recovery investigation may be exercised. Subsection (3) gives power for the High Court judge to make the warrant subject to such conditions as he thinks fit. Where a member of staff of ARA executes a search warrant, he will have no automatic right to use reasonable force (in contrast to the position where a constable executes a search warrant). Subsection (7) gives a High Court judge power to authorise the member of staff of ARA to use reasonable force if he thinks it necessary to make the warrant effective.

Disclosure orders

Clause 346: Disclosure orders

480. Under subsection (1), only the Director may apply to a judge for a disclosure order. It is available in respect of a confiscation and a civil recovery investigation but not a money laundering investigation. Because of the necessarily invasive nature of such an order, it is not thought appropriate that such a power should be available for investigations into offences, although comparable powers exist in the Terrorism Act 2000 in relation to terrorist offences as well as terrorist funding. One legacy of the troubles in Northern Ireland is that similar powers are currently available in Northern Ireland to court appointed financial investigators where an investigation is taking place into the proceeds of crime (see paragraph 2 of Schedule 2 to the Proceeds of Crime (Northern Ireland) Order 1996 [SI 1996 No.1299 (NI 9)].

481. Once a disclosure order has been made, the Director may use the extensive powers set out in subsection (4) throughout the investigation. Thus, unlike the other orders covered by this Part which have to be applied for separately on each occasion, a disclosure order gives the Director continuing powers for the purposes of the investigation. A person may require that evidence of the authority to exercise disclosure powers be provided. Where this happens, it is envisaged that a copy of the disclosure order will be given to the person.

Clause 347: Requirements for making of disclosure order

482. Because of their intrusive nature, it is not anticipated that disclosure orders will be sought unless other powers, such as production orders, have already been sought or would demonstrably not suffice to enable the required information to be obtained. Indeed, this would be one of the points a judge would be expected to consider as part of his consideration of the proportionality test which would apply by virtue of section 6 of the Human Rights Act 1998.

Clause 348: Offences

483. As the disclosure order obliges persons to comply with certain requirements, sanctions to compel such compliance are required. There is a maximum penalty of six months imprisonment and/or a level 5 fine (currently £5000) for non-compliance and two years imprisonment and/or an unlimited fine for knowingly or recklessly makes a false or misleading statement.

Clause 349: Statements

484. As part of the Government's response to the judgment of the European Court of Human Rights in the case of Saunders v UK, Schedule 3 to the Youth Justice and Criminal Evidence Act 1999 amended a number of compulsory disclosure powers in order to prevent a statement obtained under compulsion from a person from being used to incriminate him (subject to exceptions). Similar provision is made in this clause.

Customer information orders

Clause 352: Customer information orders

485. A customer information order requires all (or a targeted sample of) banks and other financial institutions to provide details of any accounts held by the person who is the subject of a confiscation or money laundering investigation. The order can also apply to persons who appear to hold a property which is subject to a civil recovery investigation. Subsection (1) requires an application to be made by a senior appropriate officer. Clause 365 sets out who is a senior appropriate officer in the three types of investigation. As with disclosure orders, a person may require the person serving the order to demonstrate that they have the authority they claim.

Clause 353: Meaning of customer information

486. This clause sets out the definition of "customer information" for individuals and for companies and partnerships. Subsections (2)(f) and (3)(i) require financial institutions to produce evidence of identity obtained in compliance with the relevant existing legislation, currently the Money Laundering Regulations 1993 [SI 1993 No.1933]. By virtue of clause 441(4), any order made by the Secretary of State under subsection (4) to extend the meaning of "customer information" will be subject to annulment in pursuance of a resolution of either House.

Clause 355: Offences

487. As with the disclosure order, there are two offences connected with customer information orders. As the sanctions are directed at non-compliant institutions rather than an individual they are solely financial. The maximum penalties are a level 5 fine (currently £5000) for non-compliance and an unlimited fine for knowingly or recklessly making a false or misleading statement.

Clause 356: Statements

488. Like the disclosure order, a customer information order requires an institution to divulge information. This clause sets out the standard conditions on the use of such information to prevent information obtained under compulsion from being used against the financial institution in criminal proceedings against it (subject to certain limited exceptions) (see clause349).

Account monitoring orders

Clause 359: Account monitoring orders

489. This clause would have the effect of requiring a financial institution to provide specified information in relation to an account (for example, details of all transactions passing through the account) during a specified period up to a maximum of 90 days. The information would normally be provided in the form of a bank statement. An account monitoring order may be obtained in respect of all three types of investigation specified in clause 330 and can be applied for by an appropriate officer as set out in clause 365.

Clause 360: Requirements for making of account monitoring order

490. As part of his consideration of the proportionality test that he must apply by virtue of section 6 of the Human Rights Act 1998, the judge might want to satisfy himself that an order of this type lasting over a period of time (rather than a one-off production order) is necessary for the purposes of the investigation.

Clause 361: Statements

491. As with the disclosure and customer information orders, an account monitoring order compels an institution to divulge information. Similar to provisions for disclosure orders and customer information orders, this clause sets out the standard conditions on the use of such information to prevent self-incriminatory information being used as evidence in criminal proceedings against the financial institutions (subject to certain limited exceptions).

Clause 362: Applications

492. Subsection (2) allows an applicant for an account monitoring order to vary the application. This is necessary so that an application does not fail on the ground that the judge only authorises some of the account information specified in the initial application (clause 359(6)).

Clause 364: Confiscation and money laundering

493. Subsection (3) allows the account monitoring order itself to be varied in confiscation and money laundering investigations. High Court rules would already allow for such variations in civil recovery investigations. Subsection (7) provides that account monitoring orders made by a Circuit judge have effect as if they were orders of the Crown Court. This is so that it is clear that, if the order is not complied with, contempt proceedings may be brought in the Crown Court. Contempt proceedings are automatically attracted if an order of the High Court is not complied with.

Interpretation

Clause 365: Officers

494. This clause lists the appropriate officers and senior appropriate officers who may apply for the orders and warrants set out in set out in this Chapter. Clause 436 empowers the Secretary of State to specify by order particular groups of accredited financial investigators who may exercise the powers of appropriate officers and senior appropriate officers, for example, accredited financial investigators who are also company investigators attached to the Department for Trade and Industry. An accredited financial investigator is a person accredited under clause 3. Only the Director can investigate civil recovery, and accredited financial investigators engaged by ARA will not have access to money laundering investigation powers (clause 365(6)).

495. Civilians authorised by the Director General of the National Criminal Intelligence Service to handle suspicious transaction reports may or may not be accredited financial investigators. For the purposes of the offence of prejudicing a money laundering investigation (clause 331), subsection (5) includes them in the definition of "appropriate officer". It is therefore an offence to make a disclosure or tamper with evidence which involves an investigation being carried out by such civilians (see the note for clause 331 above).